Bill Gates. Britney Spears. Halle Berry. Kobe Bryant. Jennifer Lopez. Dick Cheney. George W. Bush. What do all of these people have in common? They're among the 1.4 million taxpayers that make up the "wealthiest 1 percent" in the U.S.
We often hear how President Bush's tax cuts benefit this social and economic group, which, in the eyes of the IRS, includes anyone making just under $293,000 a year (although on average, that demographic makes $849,000 a year). It includes everyone from a senior pilot at American Airlines, who will make $337,000 this year, to Dave Matthews and J. Lo, who made $37 million and $29 million, respectively, last year.
On the other hand, the average 18-year-old made roughly $10,000 last year, working for the minimum wage of $5.15 per hour. That puts Joe Regular, flipping burgers at the local fast-food restaurant for 40 hours a week, in the poorest 20 percent of the American population.
Statistics compiled by the Citizens for Tax Justice indicate a wide gap when it comes to the percentage in tax dollars the poorest and the richest are paying. Going forward, the Bush tax cuts will lower combined federal, state and local taxes for the wealthiest 1 percent by 12 percent in 2004. The cuts will lower overall taxes for the poorest 20 percent by just 3 percent.
So why is the average 18-year-old paying more, comparatively speaking, in taxes?
Dan Mitchell, economist and senior fellow with the Heritage Foundation, a conservative organization that favors lowering taxes for Americans, said it's because the wealthy are a large source of capital when it comes to creating jobs and encouraging growth. "The wealthy save and invest in companies such as Microsoft, which creates new wealth, new opportunity, new prospects. ... It builds technology and encourages productivity."
Mitchell points to countries such as France, which have higher tax rates and see the wealthiest 1 percent investing abroad instead their native countries. "Someone like Donald Trump is always going to be OK. If the tax rate goes up, he puts his money into tax shelters. But the rest lose out," he explained.
University of Michigan professor of economics Joel Slemrod makes a different argument. He said it's unlikely that the economic stimulus provided by the tax cuts for the rich will trickle down, particularly because they reduce the amount of money in federal coffers. As federal agencies see more cuts across the board, he wonders if teens will be left with the short end of the stick. "It's a starve-the-beast approach to bring down government spending," he said. "But it will put more pressure on student-loan programs and education. Some new programs may never happen."
While the two presidential candidates have different proposals for who will get tax cuts on the wealthier end of the spectrum — President Bush is advocating more tax cuts for the 1 percent, while John Kerry is advocating more tax cuts for the middle class, which constitutes anyone making between $21,000 and $200,000 — the poorest 20 percent is still left out in the cold.
Both the Citizens for Tax Justice and Slemrod make the argument that taxes may in fact go up for the bottom 20 percent in order to finance the cost of making tax cuts permanent and to pay for provisions in the recent Medicare bill. "The younger generation has made enormous promises to the older generation regarding these initiatives," Slemrod said. "Unless the younger generation reneges on their promises, their tax rates are going to have to go way up."